Finance Minister Blaine Higgs has been leading with his chin selling the government’s pension changes to retired government workers.  From reading the news, it seems that at each session, the Minister is assaulted with demands that he retract his very modest pension reform package.

 

But the status quo is not an option. Hundreds of millions of taxpayers’ money has been thrown at government pensions to ensure they remain “fair” to former government workers. Now it’s time for some fairness to the taxpayers who are footing the bill – many of whom can’t afford to save for their own retirement.

 

The simple reality is that the current government pension system is unsustainable. There is not enough money in the system to pay for future payouts.

 

Something has got to give.

 

Government workers are paying just a fraction of the total cost of their pensions. For every $1 dollar a worker contributes to their pension program, taxpayers contribute about $2.50. Last year alone, taxpayers paid around $400 million for government pensions in contributions and covering losses.

 

That means taxpayers spent more on pensions for government employees than they did on 18 of the province’s 24 departments.

 

Despite all the money being spent, it’s making almost no difference in the overall pension deficit. The shortfall between how much the government has promised to pay in pensions and how much is in the pension fund now stands at a little over $1 billion dollars.

 

No one really wants the government to break its commitment to employees currently collecting or to those who will one day collect, but taxpayers are tapped out.  This year’s provincial deficit will come close to half a billion dollars.

 

It’s time for government pensioners to do their part. And what they are being asked to do is very minor.

 

The biggest element of the proposed government reform is a move to a shared-risk model in which pensioners and taxpayers share in any market value losses in pension investments.

 

For current pensioners, it means that their pensions will be indexed based on the investment’s performance in the market – when times are tough, they will share in some of those hard times by getting less of a pension increase. Whereas presently, indexing is at a fixed rate and any shortfall is topped up by taxpayers.

 

Government actuaries say that there is only a 2.5% chance that pensions will reduce in the next 20 years under this model.

 

Sounds fair, doesn’t it?

 

While the proposed reforms are a step in the right direction, they aren’t a complete answer. These are very timid reforms.

 

The government decided to protect government workers’ rich defined benefit pension plan (guaranteed payouts) rather than adopting what the Canadian Taxpayers Federation has been fighting for, which is a defined-contribution system (payout based on the investment’s performance). Most taxpayers in the private sector, who have a pension, have a defined-contribution pension.

 

MLAs have also committed to convert their pension plan to the shared risk model. However, as their pensions are not invested in the market, it’s unclear how this would work, or to what extent, if any, it would improve the situation for taxpayers.

 

The full set of reforms being proposed by the government will not kick in until 2062. In other words, any government worker who is currently over the age of 25 won’t feel the full brunt of reforms.

 

It comes down to a matter of principle. When the economy is struggling, should government pensioners be shielded from it at the expense of taxpayers, or are we all in this together?